A Magic, Budget-Cutting Formula?

March 2, 2011

The recent GAO report on spending and waste doesn’t say what Republicans wish it did.

A quick recap of the standoff over the budget: Republicans want to snip off some $60 billion in government spending for the rest of the year. Democrats are arguing that the steep cuts cheered on by conservatives would hit essential programs that people actually need and use—good-bye Pell Grants, good-bye food-safety inspectors, good-bye well-functioning Social Security administration, and so forth. Worse still, economic forecasters—including Ben Bernanke have argued that slashing federal spending right now would drag down the economy. Is there any way out of this impasse?

Tom Coburn thinks he’s found one. The Oklahoma Senator has been touting a new report he commissioned from the Government Accountability Office (GAO), which found that the federal government could save piles and piles of money simply by eliminating or downsizing duplicative and overlapping programs. So how much could actually be saved? Well, that’s the tricky part. The GAO report doesn’t have a firm bottom line. But Coburn claimed that there’s at least$100 billion in there—quick, painless savings.

Republicans are seizing the report to justify their budget-slashing spree. But what does the GAO report actually say? Can you really cut $100 billion in pure waste from the federal government? A closer look suggests it’s not nearly so simple. Many of the big savings are things that Republicans themselves cherish. And what’s more, squeezing the waste out of government doesn’t always mean cutting spending.

The GAO report does identify a handful of concrete savings—but they aren’t necessarily things that Republicans are eager to cut. For instance, the federal government has two overlapping programs to promote ethanol production—a renewable fuel standard on refiners and an ethanol tax credit. Simply scrapping the latter could save up to $5.7 billion a year. Sounds good, yes? Except that politicians in both parties like the ethanol tax credit—it plays well in farm states, and corn companies employ some mighty persuasive lobbyists. Similarly, Congress could, in theory, save up to $5 billion annually by cutting farm-support payments to large farms. But Republicans are, by and large, pushing to cut social services for the poor, not money for large agribusinesses. (The biggest agriculture cut in the continuing resolution passed by the House last month was $758 million slashed from a supplemental nutrition program for women, infants, and children.)

Meanwhile, many of the major savings GAO touts involve closing tax loopholes and ramping up IRS enforcement. The report recommends that the IRS start going after tax shirkers with the highest “return on investment”—just a 1 percent improvement in this area could yield $3 billion per year. But that would entail going after wealthy people and companies moving their money around in offshore tax havens. Does that sound like something Grover Norquist would go for? No? How about this: “Increasing both rental rates for non-producing oil and gas leases and onshore oil and gas royalty rates would generate over $1.7 billion over 10 years.” Raising taxes on fossil-fuel producers? Nope, Republicans have already voted that proposal down. And what about the real money-maker?

Granted, some of the recommended savings sound pretty uncontroversial. Like: “More efficient baggage screening systems could result in about $470 million in reduced TSA personnel costs over the next 5 years.” Or: “Clarifying availability of certain customs fee collections could produce a one-time savings of $640 million.” Or: “Agencies could realize cost savings of at least $3 billion by continued disposal of unneeded federal real property.” Sounds good!

Yet, as the GAO report makes clear, rooting out federal waste isn’t always as easy as reflexively cutting government spending. Often the mania for budget-cutting can be counterproductive. For instance, the GAO notes that “Promoting competition for the over $500 billion in federal contracts can potentially save billions of dollars over time.” Excellent. Yet, as John Gravois recently reported in The Washington Monthly, proper scrutiny of government contracts usually requires more government workers, not fewer. Sometimes the best way to limit government spending is to spend a little more upfront.

By and large, getting rid of most of the waste identified by the GAO would require Congress to take an active role in reorganizing federal agencies. To take just one example, the report notes that programs to tackle homelessness are spread out over 20 different departments. There’s a reason why that happened: Congress has passed several bits of legislation on homelessness over the years and spread out different responsibilities (providing shelter, job training, health care) among the various agencies. The problem now is that the different agencies don’t always communicate with each other. Streamlining might save a bit of cash—or it might not. (Most of the time, GAO can’t estimate how much the government would save from combining duplicative programs; it might turn out we just spend the same amount of money differently.) But it is likely that some shuffling would improve the services on offer. That’s worth doing in itself. Except the way to fix this is to redraw all the little organizational boxes, not simply slash federal budgets and assume all those inefficiencies will magically disappear. Under the Republican budget-cutting plan, this fragmented homelessness program will still be fragmented and slightly disorganized—it will just have less money to play with.

The trouble, of course, is that reorganizing the federal government is, in some ways, even more difficult than cutting budgets. Congressional oversight committees might have to get reorganized. Bureaucrats and companies who have learned to navigate the existing system start complaining. From Congress’s perspective, it’s a lot easier just to cut a few billion from the budget and call it a day. But that’s not the same thing as making the government work better—or rooting out waste.